Preview
FILED: NEW YORK COUNTY CLERK 09/11/2012 INDEX NO. 650159/2010
NYSCEF DOC. NO. 114 RECEIVED NYSCEF: 09/11/2012
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
- --- ---------------------------------------
HARVEY RUDMAN and HAROLD KUPLESKY, on
Behalf of Each of Theirs Individually and on Behalf of
Index No. 650159/10
Starrett City Preservation LLC, Derivatively,
Plaintiffs,
against
CAROL GRAM DEANE, THE ESTATE OF DISQUE
D. DEANE by CAROL G. DEANE,
as TEMPORARY EXECUTRIX, SALT KETTLE LLC,
ST. GERVAIS LLC, STARRETT CITY
PRESERVATION LLC, DD SPRING CREEK LLC,
SK SPRING CREEK LLC, SPRING CREEK PLAZA
LLC, DD SHOPPING CENTER LLC and SK
SHOPPING CENTER LLC,
Defendants.
PLAINTIFFS' REPLY MEMORANDUM OF LAW IN FURTHER SUPPORT
OF THEIR MOTION TO COMPEL DOCUMENTS AND TESTIMONY
TABLE OF CONTENTS
Page
PreliminaryStateinent ......................................................................................................................1
ARGUMENT...................................................................................................................................3
I. DEFENDANTS ASSERT NEW PRIVILEGES FOR THE FIRST TIME IN
THEIROPPOSITION PAPERS ..........................................................................................3
II. DEFENDANTS HAVE NOT MET THEIR BURDEN OF DEMONSTRATING
THAT THE COMMUNICATIONS AT ISSUE ARE PRIVILEGED ................................4
A. Defendants Fail To Prove That The Attorney-Client Privilege Extends
to Berdon as Litigation Consultant ..........................................................................4
B. Defendants Fail To Establish The Applicability Of Kovel ....................................10
C. Defendants Fail To Establish That The Testimony and Documents Are
Entitled To Work Product or Trial Preparation Protection ....................................11
D. Allowing Any Privilege Here Would Set a Dangerous Precedent and
Be Contrary to Public Policy .................................................................................15
Conclusion.....................................................................................................................................15
i
] 601345.
TABLE OF AUTHORITIES
Pages)
CASES
Abbott Laboratories v. Alpha Therapeutic Corp.,
2000 WL 1863543 (N.D. Ill. Dec. 14, 2000) .............................................................................4
Aetna Cczs. &Sur. Co. v. CeYtain Underwriters czt Lloyd's,
263 A.D.2d 367, 692 N.Y.S.2d 384 (1st Dept 1999) ...............................................................9
AXA Mediterranean Holdings, S.A., v. ING Ins. Intl, B. V.,
No. 652110/2010 (Sup. Ct. N.Y. Co. July 25, 2012) .........................................................12, 14
Beach v. Tourczdji Capital Mgint., LP,
949 N.Y.S.Zd 666 (1st Dept 2012) .........................................................................................12
City ofRochester v. E&L Piping, Inc.,
2001 WL 1263377 (Sup. Ct. Monroe Co. Aug. 29, 2001) ........................................................6
Cottillion v. United Ref. Co.,
279 F.R.D. 290 (W.D. Pa. 2011) .......................................................................................10, 12
Delta Fin. Corp. v. Morrison,
14 Misc.3d 428, 827 N.Y.S.2d 601 (Sup.. Ct. Nassau Co. 2006).............................................14
Hudson Ins. Co. v. Oppenheim,
72 A.D.3d 489, 899 N.Y.S.2d 29 (1st Dept 2.010) ...........................................................10, 12
Hexion Specialty Chemicals, hzc. v. Huntsman Corp.,
2008 WL 3878330 (Del. Ct. of Chancery Aug. 22, 2008)...............................................4, 6, 13
In re Chaparral Resources, Inc. ShaYeholdeYS Litigation,
2007 WL 2998967 (Del. Ct. of Chancery Oct. 11, 2007)..........................................................7
Kelley v. Microsoft Corp.,
2009 WL 168258 (W.D. Wash. Jan. 23, 2009)..................................................................11, 13
MBIA InsuYance CoNp. v. Countywide Honze Loans, Inc.,
2011 WL 7640152 (Sup. Ct. N.Y. Co. January 25, 2011) ...................................................9, 12
MBIA Insurance Coip. v. Countyywide Home Loans, Inc.,
93 A.D.3d 574, 941 N.Y.S.2d 56 (1st Dept 2012) ...................................................................9
Spectrum Sys. Intl Corp. v. Cl~err~. Bank,
78 N.Y.2d 371, 581 N.E.2d 1055, 575 N.Y.S.2d 809 (1991) ......................................4, 8, 9, 13
ii
60l 345.1
Stoll v. Kraft Foods Global Inc.,
2010 WL 2560101 (S.D. Ind. June 24, 2010) .......................................................................7, 13
United States v. Hatfield,
2010 WL 183522 (E.D.N.Y. Jan. 8, 2010) ...................................................................7, 11, 12
United States v. Kovel,
296 F.2d 918 (2d Cir. 1961)...........................................................................................1, 10-11
Zimmerman v. Nassau Hospital,
76 A.D.2d 921, 429 N.Y.S.2d 262 (2d Dep't 1980)..................................................................12
STATUTES
CPLR3101 (d) ...........................................................................................................................4, 14
CPLR31O1(h) ..................................................................................................................................1
Fed. R. Civ. P. 26~b)~4)~B) ..............................................................................................................6
iii
1601345.1
Plaintiffs Harvey Rudman and Harold Kuplesky, acting individually and derivatively on
behalf of Starrett City Preservation LLC ("Preservation"), submit this reply memorandum of law
in further support of their motion to compel the production of documents and testimony (the
"Motion").
Preliminary Statement
For many months of discovery and meet and confer efforts, defendants exclusively relied
on one privilege to support their refusal to answer questions and to produce 78 specified
documents and undoubtedly more: the Kovel doctrine,i a limited extension of the attorney-client
privilege.2 After plaintiffs filed the Motion, defendants, in an about-face, all but abandoned their
position with regard to the applicability of Kovel in favor of several new theories of protection,
asserted for the first time in their opposition. They also reversed course and produced dozens of
documents previously withheld as allegedly privileged. Defendants are scrambling to deprive
plaintiffs of access to the accountants' communications with counsel, the client and internally
about key matters under any privilege they can think of.
Even with these changes, defendants have utterly failed to meet their burden of proving
entitlement to any of the privileges now claimed under the circumstances here. They attempt to
hide pertinent information from an intended fact witness under the cloak of a privilege: defense
counsel hired defendants' existing accountant firm -- and used the same individual accountants at
that firm -- as "litigation consultants" on the same issues that the firm was concurrently
evaluating for purposes of ongoing accounting analyses and the preparation of tax returns. Not
' See United States v. Kovel, 296 F.2d 918 (2d Cir. 1961).
Z As noted in the Motion, and not disputed in the opposition papers, more documents claimed as
privileged were likely withheld than appear on the privilege logs. The logs only list documents through
Apri120, 2011 for defendants' log, and May 26, 2011 on the Berdon log. Pertinent documents were
created subsequently and must be produced. CPLR 3101(h).
1601345.1
surprisingly, Berdon's analyses and tax returns favor defendant Carol Deane at the expense of
plaintiffs, and the accountants' interpretations of provisions of the Preservation Operating
Agreement for purposes of their ongoing accounting work are aligned with defendants' disputed
interpretations in this case.
In opposition, defendants fail to provide evidence to establish that the work performed by
Berdon wearing the litigation consultant hat was carefully delineated from the business services
it was simultaneously providing. In fact the evidence shows just the opposite: there was no
meaningful delineation between the two. In addition, they fail to establish that any
communications concerning overlapping issues were primarily for litigation or that the
communications were privileged at all. Even if a privilege might otherwise exist, a waiver of the
privileges occurred in light of Berdon's dual roles and expected testimony at trial.
Defendants' motivation is transparent: to have litigation counsel influence on-going tax
and accounting services to create business documents that will help their case at trial, use those
documents and the accountants' testimony at trial, but prevent plaintiffs' counsel from obtaining
pertinent documents and communications that may be used to cross-examine the accountant or
put his credibility into question. If this conduct were allowed, it would become widespread
among litigation counsel, undermining well-established principles of fair and broad discovery
and the legitimate use of attorney privileges.
The Motion should be granted in all respects
2
1601345.1
ARGUMENT
I. DEFENDANTS ASSERT NEW PRIVILEGES FOR THE
FIRST TIME IN THEIR OPPOSITION PAPERS
As reflected in the moving papers, prior to the filing of the Motion, defendants had
consistently and exclusively asserted the Kovel doctrine as the basis for their privilege claims.
Plaintiffs' counsel wrote multiple letters, over the course of months, objecting to defendants'
invocation of the Kovel privilege. Veit Aff. Exhs. C, F, G.3 Never once did defense counsel
respond or claim that any other privilege applied. Veit Aff. ¶ 6.4
Defendants have now changed tacks. On the eve of filing opposition papers, they
withdrew their privilege claim for 62 of the 78 documents on their logs, admitting that they could
not come up with even an arguable claim of privilege for most of the documents previously
withheld. Defendants and Berdon then produced newly revised privilege logs with their
opposition papers for the remaining documents. Warner Aff. Exhs. C, D. Gone are all
references to "Kovel" in the "Privilege Type" and "Privilege Basis" columns. Now, the
privileges claimed for every document are "Attorney-Client," "Work Product" and "Trial
Preparation."
Defendants repeatedly fault plaintiffs for attacking the applicability of the Kovel privilege
but not addressing other potential privileges. (Opp. Mem. at 2, 17-20.) But the reason is
3Capitalized terms have the same meaning as in plaintiffs' moving papers. "Warner Aff." refers to the
Affirmation of Kenneth E. Warner filed in opposition to the Motion. "Kotler Aff." refers to the Affidavit
of Stuart Kotler filed in opposition to the Motion. "Moving Mem." and "Opp. Mem." refer to plaintiffs'
memorandum of law and defendants' memorandum of law submitted in connection with this Motion:
4 Similarly, the privilege logs produced by defendants and Berdon specified "Kovel" under the "Privilege
Type" or "Privilege Basis" columns for every document; work product and trial preparation privileges
were never invoked. Veit Aff. Exhs. D, E. The "attorney-client privilege" was specified for only a
handful of communications with Warner, with no further explanation than the additional invocation of
Kovel. Defense counsel specified Kovel on the record in directing Kotler not to answer questions. See,
eg., Veit Aff. Exh. B at 88:3-6, 90:15-20, 91:14-22, 141:9-14. In fact, defendants' log was entitled
"Privilege Log — Berdon LLP Kovel Agreement" (id. Exh. E), and Berdon's summary invoices charge for
services pursuant to their "Kovel retention" (Warner Aff. Exh. B).
1 GO 1 345.
obvious: plaintiffs properly addressed the only privilege that had been invoked by defendants,
which at the tune was Kovel. Plaintiffs have waived any privileges not asserted prior to the filing
of the Motion. See, e.g., Abbott Laboratories v. Alpha Therapeutic Carp., 2000 WL 1863543
(N.D. Ill. Dec. 14, 2000).
II. DEFENDANTS HAVE NOT MET THEIR BURDEN OF DEMONSTRATING
THAT THE COMMUNICATIONS AT ISSUE ARE PRIVILEGED
Defendants bear the burden of proving that the documents and communications at issue
are privileged. Spectrum Sys. Intl Corp., v. Chemical Bank, 78 N.Y.2d 371, 377, 575 N.Y.S.2d
809, 813 (1991). Defendants have not met their burden with regard to Kovel or any of their
newly-asserted protections.
A. Defendants Fail To Prove That The Attorney-Client Privilege Extends to
Berdon as Litigation Consultant
While an attorney's communications with, or work performed by, anon-testifying litigation
consultant inay be privileged in some circumstances (CPLR 31O1(d)), defendants have failed to
establish that they may invoke that privilege here, where defense counsel engaged defendants'
accountants as the litigation consultants notwithstanding that they were simultaneously providing
accounting analyses and preparing tax returns that required them to address the precise issues
discussed with counsel, and about which they will be fact witnesses at trials
The Court of Chancery of Delaware squarely rejected claims of privilege in a nearly
identical situation. In Hexion Specialty Chemicals, Inc. v. Huntsman Corp., 959 A.2d 47 (Del.
Ct. of Chancery 2008), the defendant, Huntsman, engaged Merrill Lynch as its financial advisor
in 2005, and Merrill Lynch continued to serve in that position. Id. at 49. As such, Merrill Lynch
had advised Hunst~nan in connection with a July 2007 merger agreement with the plaintiffs. In
5 Warner admits that Berdon will be a fact witness, even though the Opposition Memorandum omits that
fact and tries solely to emphasize that he will not be testifying as an expert. Compare Warner Aff. ¶ 9
with Opp. Mem. at 5.
1601345.
June 2008, plaintiffs brought an action in which they claimed, among other things, that the
rnerger agreement could not close due to Huntsman's financial condition. A week later,
Huntsman sent a letter to Merrill Lynch retaining it as a litigation consultant. As in this case,
"Merrill Lynch did not form separate and distinct financial advisory and litigation consulting
teams. Instead, the same Merrill Lynch group who had been performing financial advisory
services for Huntsman added litigation advisory services to their duties." Id. Merrill Lynch, in
its role as a financial advisor on the deal, was intended to be a key fact witness. Id. Plaintiff
moved to compel the production of documents withheld under the litigation consultant rule and
claims of work product. Id.
The Court held that the litigation consultant privilege could not be invoked in this
context. Rejecting the precise argument that defendants make here -- that Berdon was the
"logical and practical" choice to be litigation consultant because "Berdon already understood
both the Preservation Agreement and the balance sheets of soiree of the defendants" (Opp. Mem.
at 3, though not contained in any affidavit) -- the Court held that communications with Merrill
Lynch were not privileged due to its dual and ongoing role with the defendant, and the failure to
set up a separate, independent team of consultants from those who would be fact witnesses:
Huntsman argues that Merrill Lynch was the obvious choice for its
litigation consultant because it was familiar with the company,
understood the deal, and could quickly provide the requested
advice. While these observations maybe true, they are irrelevant.
Huntsman had sufficient time to engage an independent financial
advisor as a litigation consultant. More important, if Huntsman
was actually interested in having Merrill Lynch provide litigation
services to its attorneys (instead of cloaking its financial services
from discovery), Huntsman had both the time and the occasion to
ask Merrill Lynch to form a separate team of litigation consultants.
Had that happened, Merrill Lynch might then have maintained
adequate internal controls to prevent the fact witnesses serving on
the investment banking team from gaining knowledge of the
litigation consultant team's work. In that case Huntsman might
5
160 1 345.1
have gained the protections of Rule 26(b)(4)(B) for the work of
those litigation consultants. 6
Id. at 50-51. The Chancery Court also specifically rejected the attempt, as defendants try here, to
designate a third party as a privileged "litigation consultant" where their on-going work for the
defendant is pertinent to the litigation:
The present case raises an additional ground to deny the
application of [Rule 26(b)(4)(B)] because the proponent
(Huntsman) is trying to use the rule to shield testimony by a
natural fact witness. As is discussed below, it is plain that Merrill
Lynch has continued to perform financial advisory services,
including giving advice to the Huntsman board, during the period
since the litigation was filed. Huntsman should not be able to
throw a cloak of secrecy over Merrill Lynch's advisory activities
by the simple expediency of purporting to hire the same team of
Merrill Lynch employees as its counsel's so-called litigation
consultants. If Huntsman or its lawyers needed someone to consult
with, there were many other good options that would not have
prevented discovery into the continuing activities of Huntsman's
financial advisors.
Id. at 51.
"[W]hen a consultant's role is based on the same facts as to which the consultant will be
offering fact testimony, application of work product or attorney/client protections would block
the adversary's discovery of communications and information that could have influenced the fact
testimony." Stoll v. Kraft Foods Global Inc., 2010 WL 2560101, at *2-3 (S.D. Ind. June 24,
2010) (if independent consultant is to testify, privilege lost if the facts underlying consultant's
testimony are indistinct from those developed in her role as consultant). Accord City of
Rochester v. E&L Piping, Inc., No. 1999/12094, 2001 WL 1263377, at *2-3 (Sup. Ct. Monroe
~ The Delaware and federal rules are comparable to the New York rule. The advisory note to the federal
rule makes clear that the rule does not apply in the context here, as noted by the Hexion court: "The
subdivision does not address itself to the expert whose information was not acquired in preparation for
trial but rather because he was an actor or viewer with respect to transactions or occurrences that are part
of the subject matter of the lawsuit. Such an expert should be treated as an ordinary witness." Id. at 50,
citing advisory note to Fed. R. Civ. P. 26(b)(4)(B).
0
601345.
Co. Aug. 29, 2001) (where question posed "could relate" to both the litigation consulting
services and the business services, no privilege attaches; "If there is a gray area where [the fact
witness's] job activities as litigation consultant and Project Manager blur then the witness must
answer. If a question is related in any way to tasks performed as the Project Manager, which
questions may also relate to the witnesses job as a consultant, then the witness must answer.")~
Defendants admit that Berdon's litigation and business services must have been "carefully
delineated" for the privilege to be valid (Opp. Mem. at 13), but they fail to prove any demarcation
between the two. The fact that separate summary bills were issued or that a written litigation
consultant agreement was signed does not satisfy this burden. The delineation is not just as to
billing, but as to the actual services rendered. Here, it is undisputed that the same people were
providing the services simultaneously, so the taint cannot be avoided. Moreover, the evidence
submitted by plaintiffs on the Motion -- which defendants do not dispute -- shows that there was no
rhyme or reason to how certain items were charged to one matter versus the other. Kotler testified
that he did not make the distinction in his time records, but left it to his assistant to make this
choice. Mov. Mem. at 16 and evidence cited therein. The invoices themselves are not probative of
any delineation in the services provided. They are single page invoices, one reflecting total
charges for 8 months of "Kovel" services between October 2010 and June 2011, and the second
doing the same for the next five months. Warner Aff. Exh. B. They do not include the actual time
records or any indication of the substance of the work done.
See also In Ye Chaparral Resources, Inc. Shareholders Litigation, 2007 WL 2998967 (Del. Ct. of
Chancery Oct. 11, 2007) (team retained at valuation firm to serve as litigation consultants were not
sufficiently walled off from team retained to provide expert services; due to the substantial sharing of
information between the teams, the work of both teams would be treated under the expert witness
standard for purposes of discovery); United States v. Hatfield, 2010 WL 183522, at *3-*4 (E.D.N.Y. Jan.
8, 2010) (any privilege that may have attached to communications with and work done by alleged
litigation consultant was lost when such information was shared with the business consultants; see
discussion in Moving Mem. at 17).
7
1601345.1
Moreover, as set forth in the Motion and not disputed in the opposition, central issues in
the case such as the meaning of the Preservation Operating Agreement (which Warner and
Kotler admit that they discussed in alleged privileged conversations) were precisely the issues
being evaluated by Kotler for purposes of preparing the tax returns as well as accounting
analyses that resulted in the alteration of the members' capital accounts at issue in this litigation.
Mov. Mein. at 4-5, 14-15. Defendants make no effort to explain how the litigation and business
services could have been "carefully delineated" where these topics were discussed between
counsel and Kotler and then invoked by him in performing the business services.
The affidavits submitted in opposition are no help in making these fact intensive
inquiries.$ They contain primarily conclusory statements that presumably apply to all documents
and testimony precluded from discovery. Warner Aff. ¶¶ 6, 7; Kotler Aff. ¶¶ 6, 7, 9. Defendants
applaud themselves for allegedly having produced all of Berdon's regular accounting work and
withholding only their litigation consulting work. Opp. Mein. at 5, 13. But such conclusory
statements miss the point of the Motion: Defendants have not explained how they made the
determination of which communications were accounting services and which were litigation -- a
difficult (if not impossible) task here, given that the same issues were discussed with and utilized
by Kotler for both purposes concurrently. Indeed, Warner admits that he and Kotler discussed
the issues and facts that were central to Berdon's non-litigation work: "Among other topics,I
consulted Berdon in connection with the interpretation of Section 3.3 of the Preservation
Agreement and its accounting implications.... I also consulted with Berdon in order to
understand the tax and accounting factors involved in issuing and preparing partnership returns
(K-1s) to LLC members." Warner Aff. ¶ 8.
$ Specti°z~m Sys. b~t'l Corp., 78 N.Y.2d at 378 ("whether a particular document is or is not protected is
necessarily afact-specific determination").
8
60I 345.
The newly-minted privilege logs submitted with the opposition contain descriptions that
help plaintiffs snore than defendants. Warner Aff. Exhs. C, D. Most entries clearly show that the
communications claimed to be privileged were about facts and circumstances relied upon for the
accounting and tax services being provided. See, e.g., B15-18 (communications about tax returns
or the implications of tax returns, concerning Preservation); B67-70, D9-1Z (communications
about their interpretations of K-ls, or Preservation's K-ls); B5, B6, B12-14, Dl, D14-19
(communications about "accounting issues"). Although not specified on the logs or in the
affidavits, the Opposing Memorandum states that some documents (B67-70) relate to
"coininunications regarding the interpretation of the calculation of Plaintiffs' capital accounts,"
which was an accounting exercise performed by Berdon that impacted the tax returns and will be
an issue at trial. Opp. Mem. at 16: Mov. Mem. at 14.9
In MBIA Insurance Corp. v. Countrywide Home Loans, Inc.,2011 WL 7640152 (Sup. Ct.
N.Y. Co. January 25, 2011), aff'd 93 A.D.3d 574, 941 N.Y.S.2d 56 (1st Dept 2012), relied
upon by defendants, the consultants retained by counsel had no prior relationship with the client.
Rather, they were hired by counsel following the closing of the transaction to investigate
potential claims on plaintiffs behalf. At issue was whether the independent consultants' work
remained privileged because the plaintiff relied on their investigation in deciding not only to
coin~nence litigation, but also to issue repurchase requests to defendant. The consultants in
MBIA were not to be fact or expert witnesses in the case, nor were their written materials to be
trial exhibits. The court, in upholding the privilege, thus did not consider the issues presented
~ Further, it is basic privilege law that an attorney-client communication "must be primarily or
predominantly of a legal character." Spectrum Sys. Int'1 Corp. v. Chem. Bank, 78 N.Y.2d 371, 377-78,
575 N.Y.S.2d 809, 814 (1991); Aetna Cas. &Sur. Co. v. Certain Underwriters at Lloyd's, 263 A.D2d
367, 368, 692 N.Y.S.2d 384, 385 (1st Dept 1999). Given that Berdon was considering the same issues
for both roles, defendants have failed to demonstrate that any or all of the withheld material —which
seems to relate to the business issues equally based on the information provided -- is "primarily or
predominately" legal in nature.
E
1 601345.
here, namely, the situation where the "litigation consultant" was not independent; was
performing other concurrent services for the client while in consultation with counsel, and based
on the same issues discussed with counsel; and where such work (e.g. tax returns) would be
evidence at trial about which they would testify.10
B. Defendants Fail To Establish The Applicability Of Kovel
As discussed at length in plaintiffs' moving papers, to prove entitlement to the Kovel
privilege, defendants' must demonstrate that (i) the communications at issue were for purposes
of translating accounting or financial matters for counsel; and (ii) the potentially privileged
communications can be parsed from the simultaneous accounting services, on the same issues,
that were being undertaken. Mov. Mem. at 10-13, 15-19. In opposition, defendants largely
abandon the effort to fall within the privilege -- pointing instead to the litigation consultant
privilege (Opp. Mem. at 8, 18) -- and do not prove its applicability.
Defendants do not even attempt to meet the first criteria, nor can they. Kotler admitted in
` his deposition that his communications with Warner had nothing to do with giving hiin advice
about defendants' accounting and financial records. See Mov. Mem. at 10-12 and evidence cited
therein. Their only responses are to offer conclusory contrary statements (e.g., criteria met
"because the withheld documents do not contain or consist of Berdon's general accounting
advice, but contain accounting analysis designed to assist defense counsel in providing
representation to their clients" (Opp. Mem. at 10; see also Warner Aff. ¶ 6)), or to criticize
plaintiffs for focusing on Kovel, and then claiming instead that Kotler's testimony adequately
10 Indeed, none of the cases cited by defendants comes close to the facts present here. See Hudson Ins.
Co. v. Oppe~~heim, 72 A.D.3d 489, 899 N.Y.S.2d 29 (1st Dept 2010) (forensic accountant consultant, not
regularly employed by defendant, hired specifically to assist counsel with the defense of an identical
action filed in Arizona); Cottillioi~ v. United Ref. Co., 279 F.R.D. 290, 297 (W.D. Pa. 2011) (consultant
not intended to be a fact or expert witnesses).
10
601345. ]
supported their newly invoked litigation consultant privilege (which, as shown above, has also
not been established). See, e.g., Opp. Mem. at 17-20.
Defendants also fail to meet their burden on the second criteria: that any claimed
privileged communications were separate from Berdon's concurrent business communications.
Defendants do not undertake a document by document analysis or evaluate testimony withheld,
resting instead on sweeping conclusory platitudes. Notably, defendants fail to identify what,
exactly, Berdon was doing as litigation consultant, and do not even attempt to explain how those
services relate to the litigation consultancy but not to the business services being simultaneously
provided. As discussed supra at 8, in the Motion plaintiffs explained the factual overlap between
Kotler's work as litigation consultant and as accountant for Preservation, and defendants do not
dispute any of it or even address it. ~ I
C. Defendants Fail To Establish That The Testimony and Documents Are
Entitled To Work Product or Trial Preparation Protection
For the same reasons, defendants have failed to prove that the documents and testimony
in dispute constitute work product or trial preparation materials, or, even if they do, that such
protections have not been waived in light of the fact that Berdon will be a fact witness on
business matters intertwined with the coininunications claimed as privileged.
Defendants argue that "whether an accountant's documents" are work product "turns on"
whether the accountant was retained by counsel as a litigation consultant. Opp. Mem. at 11; see
also id. at 12. But far snore than entering into a retention agreement is required to sustain their
burden under the circumstances here.
" Contrary to defendants' allegations (Opp. Mem. at 8), plaintiffs address two cases in which Kovel was
asserted in the litigation consultant context. See Mov. Mem. at 16-18, discussing Hatfield and Kelley.
Further, those cases demonstrate that the same standard is used in all contexts. Opp. Mem. at 10, n. 2.
11
1 G0I 345.
Work product and trial preparation protections are only available if defendants show that
the material was prepared "primarily for purposes of litigation." MBIA Insurance Corp., 2011 WL
7640152, at *6 and *7; Zimmerman v. Nassau Hospital, 76 A.D.2d 921, 922, 429 N.Y.S.2d 262,
264 (2d Dep't 1980) ("multi-motivated reports do not warrant immunity if litigation is but one of
the motives."); Cottillion v. United Refining Co., 279 F.R.D. 290, 302 (W.D. Pa. 2011) (same). It
is undisputed that these doctrines "[do)not protect documents prepared `in the ordinary course of
business, or pursuant to public requirements unrelated to litigation, or for other non-litigation
reasons."' Cottillion, 279 F.R.D. at 302; AXA Mediterranean Holding, S.A., v. ING Ins. Intl, B. V.,
No. 652110/2010, at 7 (Sup. Ct. N.Y. Co. July 25, 2012) (records prepared in the ordinary course
of business do not qualify for work product privilege).12
A waiver of these protections occurs where, as a result of disclosure to a third party, "there
is a likelihood that the material will be revealed to an adversary, under conditions that are
inconsistent with a desire to maintain confidentiality." AXA Mediterranean, Index No.
652110/2010, at 4 (waiver of work product privilege); People v. Kozlowski, 11 N.Y.3d 223, 246,
869 N.Y.S.2d 848, 863 (2008) (waiver of trial preparation privilege); Hatfield, 2010 WL 183522,
at *3 ("A party who wishes to assert the work product immunity must take `reasonable
precautions' to ensure the confidentiality ofthe protected material.")
Assertions of these protections in comparable situations have repeatedly been rejected, as
the proponents cannot establish that the information was primarily for litigation and/or that it had
adequately been protected from disclosure. See, e.g., Hatfield (discussed in Mov. Mem. at 16-
~Z Defendants overstate the scope of work product protection. Addressing Hz~dson (cited by defendants),
the First Department recently made clear that where a consultant is involved, the doctrine does not protect
all documents, but "affords protection only to facts and observations disclosed by the attorney. Thus, it is
the information and observations of the attorney that are conveyed to the expert which may thus be
subject to trial exclusion." Beach v. Tourac~ji Capital Mgmt., LP, 949 N.Y.S.Zd 666 (1st Dept 2012).
12
601345.
18) (court rejected attempts to hide communications between counsel and consultant as attorney
client communications or work product where the consultant, in turn, provided the information to
the company's accountants for use in audit work); Kelley v. Microsoft Corp., 2009 WL 168258
(W.D. Wash. Jan. 23, 2009) ("Once a third party witness, hired after the start of litigation, is
offered as deponent on the client's behalf, it becomes difficult for that third to maintain that
party
its primary function [was] to provide legal advice to the client"; rejecting assertions of attorney
client and work product privileges); Stoll, 2010 WL 2560101, at *3 (work product privilege would
be waived if facts underlying any testimony by litigation consultant were indistinct from those
developed in her role as consultant); Hexion Specialty Chemicals, 959 A.2d at 52 (where litigation
consultant continued to act as financial advisor and would be a trial witness, court rejects work
product claim for documents as relating to business advice after in camera inspection).
As shown above, defendants have failed to prove that any of the documents or testimony at
issue constitutes work product, or that they were "primarily" for litigation. The affidavits largely
make conclusory statements, and the logs themselves suggest that the substance of the
communications relate as much to the facts pertinent to Berdon's ongoing business services as to
the litigation services. A party's own labels are obviously not determinative of whether the
protections exist. See Spectrum Sys. Intl Corp., 78 N.Y.2d at 381.
In all events, a waiver of the protections occurred here. Berdon utilized the same facts and
concepts being discussed with counsel in its accounting work and tax returns, which were provided
to plaintiffs (and the IRS) and will be evidence in this case. All are in dispute: Berdon's/
Defendants' interpretation of the Preservation Operating Ageeinent (including Section 3.3) used
by Berdon; the manner in which Berdon deprived plaintiffs of their capital contributions (in favor
of Carol Deane) allegedly based on that interpretation; and the manner in which Berdon prepared
13
1 601345.1
Preservation K-1's (which was different from the prior year, when done by another accountant).
See Mov. Mem. at 4-5, 14-15. These matters are addressed in the communications and documents
withheld as work product and trial preparation materials. Given the disclosure of these matters to
the business accountants (which here are the same people as the litigation consultants) and their
utilization in disputed accounting work in this case, defendants failed to protect the claimed work
product and trial preparation materials from being disclosed to plaintiffs.
Defendants' cases do not support the finding of a valid privilege here. In Delta Fin.
Corp. v. Morrison, 14 Misc. 3d 428, 827 N.Y.S.2d 601 (Nassau Sup. 2006) ("Delta Fin. II"), the
consultant was hired by the client to conduct two residual certification evaluations, and a year
later was retained by defense counsel as a litigation consultant. Id. at 430. Although the
consultant was to be a fact witness in connection with its prior evaluation of the certificates at
issue, the consultant was not doing any on-going work for the client, and would not be a fact
witness about services provided at the same time that he was communicating with counsel as a
litigation consultant. Thus, conversations between defense counsel and the consultant did not
have the same potential to influence the preparation of documents and the events that would be
evidence at trial, as occurred here. Accord AXA Mediterranean Holdings, S.A., supra
(accounting firm did not provide business services simultaneously with litigation consulting
services, and would only be a fact witness as to historical work).13
13 In all events, the materials should be produced based on plaintiffs' substantial need for them. These
materials reflect facts and issues evaluated by Berdon in preparing accounting analyses and tax returns
that will be evidence at trial, and about which Berdon will testify. Plaintiffs are unable to obtain the
substantial equivalent of these materials by other means. C.P.L.R. 3101(d)(2).
14
601345.1
D. Allowing Any Privilege Here Would Set a Dangerous Precedent and Be
Contrary to Public Policy
To allow defendants to claim a privilege over documents and communications with
counsel, with defendants and inte
Preview
FILED: NEW YORK COUNTY CLERK 09/11/2012 INDEX NO. 650159/2010 NYSCEF DOC. NO. 114 RECEIVED NYSCEF: 09/11/2012 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK - --- --------------------------------------- HARVEY RUDMAN and HAROLD KUPLESKY, on Behalf of Each of Theirs Individually and on Behalf of Index No. 650159/10 Starrett City Preservation LLC, Derivatively, Plaintiffs, against CAROL GRAM DEANE, THE ESTATE OF DISQUE D. DEANE by CAROL G. DEANE, as TEMPORARY EXECUTRIX, SALT KETTLE LLC, ST. GERVAIS LLC, STARRETT CITY PRESERVATION LLC, DD SPRING CREEK LLC, SK SPRING CREEK LLC, SPRING CREEK PLAZA LLC, DD SHOPPING CENTER LLC and SK SHOPPING CENTER LLC, Defendants. PLAINTIFFS' REPLY MEMORANDUM OF LAW IN FURTHER SUPPORT OF THEIR MOTION TO COMPEL DOCUMENTS AND TESTIMONY TABLE OF CONTENTS Page PreliminaryStateinent ......................................................................................................................1 ARGUMENT...................................................................................................................................3 I. DEFENDANTS ASSERT NEW PRIVILEGES FOR THE FIRST TIME IN THEIROPPOSITION PAPERS ..........................................................................................3 II. DEFENDANTS HAVE NOT MET THEIR BURDEN OF DEMONSTRATING THAT THE COMMUNICATIONS AT ISSUE ARE PRIVILEGED ................................4 A. Defendants Fail To Prove That The Attorney-Client Privilege Extends to Berdon as Litigation Consultant ..........................................................................4 B. Defendants Fail To Establish The Applicability Of Kovel ....................................10 C. Defendants Fail To Establish That The Testimony and Documents Are Entitled To Work Product or Trial Preparation Protection ....................................11 D. Allowing Any Privilege Here Would Set a Dangerous Precedent and Be Contrary to Public Policy .................................................................................15 Conclusion.....................................................................................................................................15 i ] 601345. TABLE OF AUTHORITIES Pages) CASES Abbott Laboratories v. Alpha Therapeutic Corp., 2000 WL 1863543 (N.D. Ill. Dec. 14, 2000) .............................................................................4 Aetna Cczs. &Sur. Co. v. CeYtain Underwriters czt Lloyd's, 263 A.D.2d 367, 692 N.Y.S.2d 384 (1st Dept 1999) ...............................................................9 AXA Mediterranean Holdings, S.A., v. ING Ins. Intl, B. V., No. 652110/2010 (Sup. Ct. N.Y. Co. July 25, 2012) .........................................................12, 14 Beach v. Tourczdji Capital Mgint., LP, 949 N.Y.S.Zd 666 (1st Dept 2012) .........................................................................................12 City ofRochester v. E&L Piping, Inc., 2001 WL 1263377 (Sup. Ct. Monroe Co. Aug. 29, 2001) ........................................................6 Cottillion v. United Ref. Co., 279 F.R.D. 290 (W.D. Pa. 2011) .......................................................................................10, 12 Delta Fin. Corp. v. Morrison, 14 Misc.3d 428, 827 N.Y.S.2d 601 (Sup.. Ct. Nassau Co. 2006).............................................14 Hudson Ins. Co. v. Oppenheim, 72 A.D.3d 489, 899 N.Y.S.2d 29 (1st Dept 2.010) ...........................................................10, 12 Hexion Specialty Chemicals, hzc. v. Huntsman Corp., 2008 WL 3878330 (Del. Ct. of Chancery Aug. 22, 2008)...............................................4, 6, 13 In re Chaparral Resources, Inc. ShaYeholdeYS Litigation, 2007 WL 2998967 (Del. Ct. of Chancery Oct. 11, 2007)..........................................................7 Kelley v. Microsoft Corp., 2009 WL 168258 (W.D. Wash. Jan. 23, 2009)..................................................................11, 13 MBIA InsuYance CoNp. v. Countywide Honze Loans, Inc., 2011 WL 7640152 (Sup. Ct. N.Y. Co. January 25, 2011) ...................................................9, 12 MBIA Insurance Coip. v. Countyywide Home Loans, Inc., 93 A.D.3d 574, 941 N.Y.S.2d 56 (1st Dept 2012) ...................................................................9 Spectrum Sys. Intl Corp. v. Cl~err~. Bank, 78 N.Y.2d 371, 581 N.E.2d 1055, 575 N.Y.S.2d 809 (1991) ......................................4, 8, 9, 13 ii 60l 345.1 Stoll v. Kraft Foods Global Inc., 2010 WL 2560101 (S.D. Ind. June 24, 2010) .......................................................................7, 13 United States v. Hatfield, 2010 WL 183522 (E.D.N.Y. Jan. 8, 2010) ...................................................................7, 11, 12 United States v. Kovel, 296 F.2d 918 (2d Cir. 1961)...........................................................................................1, 10-11 Zimmerman v. Nassau Hospital, 76 A.D.2d 921, 429 N.Y.S.2d 262 (2d Dep't 1980)..................................................................12 STATUTES CPLR3101 (d) ...........................................................................................................................4, 14 CPLR31O1(h) ..................................................................................................................................1 Fed. R. Civ. P. 26~b)~4)~B) ..............................................................................................................6 iii 1601345.1 Plaintiffs Harvey Rudman and Harold Kuplesky, acting individually and derivatively on behalf of Starrett City Preservation LLC ("Preservation"), submit this reply memorandum of law in further support of their motion to compel the production of documents and testimony (the "Motion"). Preliminary Statement For many months of discovery and meet and confer efforts, defendants exclusively relied on one privilege to support their refusal to answer questions and to produce 78 specified documents and undoubtedly more: the Kovel doctrine,i a limited extension of the attorney-client privilege.2 After plaintiffs filed the Motion, defendants, in an about-face, all but abandoned their position with regard to the applicability of Kovel in favor of several new theories of protection, asserted for the first time in their opposition. They also reversed course and produced dozens of documents previously withheld as allegedly privileged. Defendants are scrambling to deprive plaintiffs of access to the accountants' communications with counsel, the client and internally about key matters under any privilege they can think of. Even with these changes, defendants have utterly failed to meet their burden of proving entitlement to any of the privileges now claimed under the circumstances here. They attempt to hide pertinent information from an intended fact witness under the cloak of a privilege: defense counsel hired defendants' existing accountant firm -- and used the same individual accountants at that firm -- as "litigation consultants" on the same issues that the firm was concurrently evaluating for purposes of ongoing accounting analyses and the preparation of tax returns. Not ' See United States v. Kovel, 296 F.2d 918 (2d Cir. 1961). Z As noted in the Motion, and not disputed in the opposition papers, more documents claimed as privileged were likely withheld than appear on the privilege logs. The logs only list documents through Apri120, 2011 for defendants' log, and May 26, 2011 on the Berdon log. Pertinent documents were created subsequently and must be produced. CPLR 3101(h). 1601345.1 surprisingly, Berdon's analyses and tax returns favor defendant Carol Deane at the expense of plaintiffs, and the accountants' interpretations of provisions of the Preservation Operating Agreement for purposes of their ongoing accounting work are aligned with defendants' disputed interpretations in this case. In opposition, defendants fail to provide evidence to establish that the work performed by Berdon wearing the litigation consultant hat was carefully delineated from the business services it was simultaneously providing. In fact the evidence shows just the opposite: there was no meaningful delineation between the two. In addition, they fail to establish that any communications concerning overlapping issues were primarily for litigation or that the communications were privileged at all. Even if a privilege might otherwise exist, a waiver of the privileges occurred in light of Berdon's dual roles and expected testimony at trial. Defendants' motivation is transparent: to have litigation counsel influence on-going tax and accounting services to create business documents that will help their case at trial, use those documents and the accountants' testimony at trial, but prevent plaintiffs' counsel from obtaining pertinent documents and communications that may be used to cross-examine the accountant or put his credibility into question. If this conduct were allowed, it would become widespread among litigation counsel, undermining well-established principles of fair and broad discovery and the legitimate use of attorney privileges. The Motion should be granted in all respects 2 1601345.1 ARGUMENT I. DEFENDANTS ASSERT NEW PRIVILEGES FOR THE FIRST TIME IN THEIR OPPOSITION PAPERS As reflected in the moving papers, prior to the filing of the Motion, defendants had consistently and exclusively asserted the Kovel doctrine as the basis for their privilege claims. Plaintiffs' counsel wrote multiple letters, over the course of months, objecting to defendants' invocation of the Kovel privilege. Veit Aff. Exhs. C, F, G.3 Never once did defense counsel respond or claim that any other privilege applied. Veit Aff. ¶ 6.4 Defendants have now changed tacks. On the eve of filing opposition papers, they withdrew their privilege claim for 62 of the 78 documents on their logs, admitting that they could not come up with even an arguable claim of privilege for most of the documents previously withheld. Defendants and Berdon then produced newly revised privilege logs with their opposition papers for the remaining documents. Warner Aff. Exhs. C, D. Gone are all references to "Kovel" in the "Privilege Type" and "Privilege Basis" columns. Now, the privileges claimed for every document are "Attorney-Client," "Work Product" and "Trial Preparation." Defendants repeatedly fault plaintiffs for attacking the applicability of the Kovel privilege but not addressing other potential privileges. (Opp. Mem. at 2, 17-20.) But the reason is 3Capitalized terms have the same meaning as in plaintiffs' moving papers. "Warner Aff." refers to the Affirmation of Kenneth E. Warner filed in opposition to the Motion. "Kotler Aff." refers to the Affidavit of Stuart Kotler filed in opposition to the Motion. "Moving Mem." and "Opp. Mem." refer to plaintiffs' memorandum of law and defendants' memorandum of law submitted in connection with this Motion: 4 Similarly, the privilege logs produced by defendants and Berdon specified "Kovel" under the "Privilege Type" or "Privilege Basis" columns for every document; work product and trial preparation privileges were never invoked. Veit Aff. Exhs. D, E. The "attorney-client privilege" was specified for only a handful of communications with Warner, with no further explanation than the additional invocation of Kovel. Defense counsel specified Kovel on the record in directing Kotler not to answer questions. See, eg., Veit Aff. Exh. B at 88:3-6, 90:15-20, 91:14-22, 141:9-14. In fact, defendants' log was entitled "Privilege Log — Berdon LLP Kovel Agreement" (id. Exh. E), and Berdon's summary invoices charge for services pursuant to their "Kovel retention" (Warner Aff. Exh. B). 1 GO 1 345. obvious: plaintiffs properly addressed the only privilege that had been invoked by defendants, which at the tune was Kovel. Plaintiffs have waived any privileges not asserted prior to the filing of the Motion. See, e.g., Abbott Laboratories v. Alpha Therapeutic Carp., 2000 WL 1863543 (N.D. Ill. Dec. 14, 2000). II. DEFENDANTS HAVE NOT MET THEIR BURDEN OF DEMONSTRATING THAT THE COMMUNICATIONS AT ISSUE ARE PRIVILEGED Defendants bear the burden of proving that the documents and communications at issue are privileged. Spectrum Sys. Intl Corp., v. Chemical Bank, 78 N.Y.2d 371, 377, 575 N.Y.S.2d 809, 813 (1991). Defendants have not met their burden with regard to Kovel or any of their newly-asserted protections. A. Defendants Fail To Prove That The Attorney-Client Privilege Extends to Berdon as Litigation Consultant While an attorney's communications with, or work performed by, anon-testifying litigation consultant inay be privileged in some circumstances (CPLR 31O1(d)), defendants have failed to establish that they may invoke that privilege here, where defense counsel engaged defendants' accountants as the litigation consultants notwithstanding that they were simultaneously providing accounting analyses and preparing tax returns that required them to address the precise issues discussed with counsel, and about which they will be fact witnesses at trials The Court of Chancery of Delaware squarely rejected claims of privilege in a nearly identical situation. In Hexion Specialty Chemicals, Inc. v. Huntsman Corp., 959 A.2d 47 (Del. Ct. of Chancery 2008), the defendant, Huntsman, engaged Merrill Lynch as its financial advisor in 2005, and Merrill Lynch continued to serve in that position. Id. at 49. As such, Merrill Lynch had advised Hunst~nan in connection with a July 2007 merger agreement with the plaintiffs. In 5 Warner admits that Berdon will be a fact witness, even though the Opposition Memorandum omits that fact and tries solely to emphasize that he will not be testifying as an expert. Compare Warner Aff. ¶ 9 with Opp. Mem. at 5. 1601345. June 2008, plaintiffs brought an action in which they claimed, among other things, that the rnerger agreement could not close due to Huntsman's financial condition. A week later, Huntsman sent a letter to Merrill Lynch retaining it as a litigation consultant. As in this case, "Merrill Lynch did not form separate and distinct financial advisory and litigation consulting teams. Instead, the same Merrill Lynch group who had been performing financial advisory services for Huntsman added litigation advisory services to their duties." Id. Merrill Lynch, in its role as a financial advisor on the deal, was intended to be a key fact witness. Id. Plaintiff moved to compel the production of documents withheld under the litigation consultant rule and claims of work product. Id. The Court held that the litigation consultant privilege could not be invoked in this context. Rejecting the precise argument that defendants make here -- that Berdon was the "logical and practical" choice to be litigation consultant because "Berdon already understood both the Preservation Agreement and the balance sheets of soiree of the defendants" (Opp. Mem. at 3, though not contained in any affidavit) -- the Court held that communications with Merrill Lynch were not privileged due to its dual and ongoing role with the defendant, and the failure to set up a separate, independent team of consultants from those who would be fact witnesses: Huntsman argues that Merrill Lynch was the obvious choice for its litigation consultant because it was familiar with the company, understood the deal, and could quickly provide the requested advice. While these observations maybe true, they are irrelevant. Huntsman had sufficient time to engage an independent financial advisor as a litigation consultant. More important, if Huntsman was actually interested in having Merrill Lynch provide litigation services to its attorneys (instead of cloaking its financial services from discovery), Huntsman had both the time and the occasion to ask Merrill Lynch to form a separate team of litigation consultants. Had that happened, Merrill Lynch might then have maintained adequate internal controls to prevent the fact witnesses serving on the investment banking team from gaining knowledge of the litigation consultant team's work. In that case Huntsman might 5 160 1 345.1 have gained the protections of Rule 26(b)(4)(B) for the work of those litigation consultants. 6 Id. at 50-51. The Chancery Court also specifically rejected the attempt, as defendants try here, to designate a third party as a privileged "litigation consultant" where their on-going work for the defendant is pertinent to the litigation: The present case raises an additional ground to deny the application of [Rule 26(b)(4)(B)] because the proponent (Huntsman) is trying to use the rule to shield testimony by a natural fact witness. As is discussed below, it is plain that Merrill Lynch has continued to perform financial advisory services, including giving advice to the Huntsman board, during the period since the litigation was filed. Huntsman should not be able to throw a cloak of secrecy over Merrill Lynch's advisory activities by the simple expediency of purporting to hire the same team of Merrill Lynch employees as its counsel's so-called litigation consultants. If Huntsman or its lawyers needed someone to consult with, there were many other good options that would not have prevented discovery into the continuing activities of Huntsman's financial advisors. Id. at 51. "[W]hen a consultant's role is based on the same facts as to which the consultant will be offering fact testimony, application of work product or attorney/client protections would block the adversary's discovery of communications and information that could have influenced the fact testimony." Stoll v. Kraft Foods Global Inc., 2010 WL 2560101, at *2-3 (S.D. Ind. June 24, 2010) (if independent consultant is to testify, privilege lost if the facts underlying consultant's testimony are indistinct from those developed in her role as consultant). Accord City of Rochester v. E&L Piping, Inc., No. 1999/12094, 2001 WL 1263377, at *2-3 (Sup. Ct. Monroe ~ The Delaware and federal rules are comparable to the New York rule. The advisory note to the federal rule makes clear that the rule does not apply in the context here, as noted by the Hexion court: "The subdivision does not address itself to the expert whose information was not acquired in preparation for trial but rather because he was an actor or viewer with respect to transactions or occurrences that are part of the subject matter of the lawsuit. Such an expert should be treated as an ordinary witness." Id. at 50, citing advisory note to Fed. R. Civ. P. 26(b)(4)(B). 0 601345. Co. Aug. 29, 2001) (where question posed "could relate" to both the litigation consulting services and the business services, no privilege attaches; "If there is a gray area where [the fact witness's] job activities as litigation consultant and Project Manager blur then the witness must answer. If a question is related in any way to tasks performed as the Project Manager, which questions may also relate to the witnesses job as a consultant, then the witness must answer.")~ Defendants admit that Berdon's litigation and business services must have been "carefully delineated" for the privilege to be valid (Opp. Mem. at 13), but they fail to prove any demarcation between the two. The fact that separate summary bills were issued or that a written litigation consultant agreement was signed does not satisfy this burden. The delineation is not just as to billing, but as to the actual services rendered. Here, it is undisputed that the same people were providing the services simultaneously, so the taint cannot be avoided. Moreover, the evidence submitted by plaintiffs on the Motion -- which defendants do not dispute -- shows that there was no rhyme or reason to how certain items were charged to one matter versus the other. Kotler testified that he did not make the distinction in his time records, but left it to his assistant to make this choice. Mov. Mem. at 16 and evidence cited therein. The invoices themselves are not probative of any delineation in the services provided. They are single page invoices, one reflecting total charges for 8 months of "Kovel" services between October 2010 and June 2011, and the second doing the same for the next five months. Warner Aff. Exh. B. They do not include the actual time records or any indication of the substance of the work done. See also In Ye Chaparral Resources, Inc. Shareholders Litigation, 2007 WL 2998967 (Del. Ct. of Chancery Oct. 11, 2007) (team retained at valuation firm to serve as litigation consultants were not sufficiently walled off from team retained to provide expert services; due to the substantial sharing of information between the teams, the work of both teams would be treated under the expert witness standard for purposes of discovery); United States v. Hatfield, 2010 WL 183522, at *3-*4 (E.D.N.Y. Jan. 8, 2010) (any privilege that may have attached to communications with and work done by alleged litigation consultant was lost when such information was shared with the business consultants; see discussion in Moving Mem. at 17). 7 1601345.1 Moreover, as set forth in the Motion and not disputed in the opposition, central issues in the case such as the meaning of the Preservation Operating Agreement (which Warner and Kotler admit that they discussed in alleged privileged conversations) were precisely the issues being evaluated by Kotler for purposes of preparing the tax returns as well as accounting analyses that resulted in the alteration of the members' capital accounts at issue in this litigation. Mov. Mein. at 4-5, 14-15. Defendants make no effort to explain how the litigation and business services could have been "carefully delineated" where these topics were discussed between counsel and Kotler and then invoked by him in performing the business services. The affidavits submitted in opposition are no help in making these fact intensive inquiries.$ They contain primarily conclusory statements that presumably apply to all documents and testimony precluded from discovery. Warner Aff. ¶¶ 6, 7; Kotler Aff. ¶¶ 6, 7, 9. Defendants applaud themselves for allegedly having produced all of Berdon's regular accounting work and withholding only their litigation consulting work. Opp. Mein. at 5, 13. But such conclusory statements miss the point of the Motion: Defendants have not explained how they made the determination of which communications were accounting services and which were litigation -- a difficult (if not impossible) task here, given that the same issues were discussed with and utilized by Kotler for both purposes concurrently. Indeed, Warner admits that he and Kotler discussed the issues and facts that were central to Berdon's non-litigation work: "Among other topics,I consulted Berdon in connection with the interpretation of Section 3.3 of the Preservation Agreement and its accounting implications.... I also consulted with Berdon in order to understand the tax and accounting factors involved in issuing and preparing partnership returns (K-1s) to LLC members." Warner Aff. ¶ 8. $ Specti°z~m Sys. b~t'l Corp., 78 N.Y.2d at 378 ("whether a particular document is or is not protected is necessarily afact-specific determination"). 8 60I 345. The newly-minted privilege logs submitted with the opposition contain descriptions that help plaintiffs snore than defendants. Warner Aff. Exhs. C, D. Most entries clearly show that the communications claimed to be privileged were about facts and circumstances relied upon for the accounting and tax services being provided. See, e.g., B15-18 (communications about tax returns or the implications of tax returns, concerning Preservation); B67-70, D9-1Z (communications about their interpretations of K-ls, or Preservation's K-ls); B5, B6, B12-14, Dl, D14-19 (communications about "accounting issues"). Although not specified on the logs or in the affidavits, the Opposing Memorandum states that some documents (B67-70) relate to "coininunications regarding the interpretation of the calculation of Plaintiffs' capital accounts," which was an accounting exercise performed by Berdon that impacted the tax returns and will be an issue at trial. Opp. Mem. at 16: Mov. Mem. at 14.9 In MBIA Insurance Corp. v. Countrywide Home Loans, Inc.,2011 WL 7640152 (Sup. Ct. N.Y. Co. January 25, 2011), aff'd 93 A.D.3d 574, 941 N.Y.S.2d 56 (1st Dept 2012), relied upon by defendants, the consultants retained by counsel had no prior relationship with the client. Rather, they were hired by counsel following the closing of the transaction to investigate potential claims on plaintiffs behalf. At issue was whether the independent consultants' work remained privileged because the plaintiff relied on their investigation in deciding not only to coin~nence litigation, but also to issue repurchase requests to defendant. The consultants in MBIA were not to be fact or expert witnesses in the case, nor were their written materials to be trial exhibits. The court, in upholding the privilege, thus did not consider the issues presented ~ Further, it is basic privilege law that an attorney-client communication "must be primarily or predominantly of a legal character." Spectrum Sys. Int'1 Corp. v. Chem. Bank, 78 N.Y.2d 371, 377-78, 575 N.Y.S.2d 809, 814 (1991); Aetna Cas. &Sur. Co. v. Certain Underwriters at Lloyd's, 263 A.D2d 367, 368, 692 N.Y.S.2d 384, 385 (1st Dept 1999). Given that Berdon was considering the same issues for both roles, defendants have failed to demonstrate that any or all of the withheld material —which seems to relate to the business issues equally based on the information provided -- is "primarily or predominately" legal in nature. E 1 601345. here, namely, the situation where the "litigation consultant" was not independent; was performing other concurrent services for the client while in consultation with counsel, and based on the same issues discussed with counsel; and where such work (e.g. tax returns) would be evidence at trial about which they would testify.10 B. Defendants Fail To Establish The Applicability Of Kovel As discussed at length in plaintiffs' moving papers, to prove entitlement to the Kovel privilege, defendants' must demonstrate that (i) the communications at issue were for purposes of translating accounting or financial matters for counsel; and (ii) the potentially privileged communications can be parsed from the simultaneous accounting services, on the same issues, that were being undertaken. Mov. Mem. at 10-13, 15-19. In opposition, defendants largely abandon the effort to fall within the privilege -- pointing instead to the litigation consultant privilege (Opp. Mem. at 8, 18) -- and do not prove its applicability. Defendants do not even attempt to meet the first criteria, nor can they. Kotler admitted in ` his deposition that his communications with Warner had nothing to do with giving hiin advice about defendants' accounting and financial records. See Mov. Mem. at 10-12 and evidence cited therein. Their only responses are to offer conclusory contrary statements (e.g., criteria met "because the withheld documents do not contain or consist of Berdon's general accounting advice, but contain accounting analysis designed to assist defense counsel in providing representation to their clients" (Opp. Mem. at 10; see also Warner Aff. ¶ 6)), or to criticize plaintiffs for focusing on Kovel, and then claiming instead that Kotler's testimony adequately 10 Indeed, none of the cases cited by defendants comes close to the facts present here. See Hudson Ins. Co. v. Oppe~~heim, 72 A.D.3d 489, 899 N.Y.S.2d 29 (1st Dept 2010) (forensic accountant consultant, not regularly employed by defendant, hired specifically to assist counsel with the defense of an identical action filed in Arizona); Cottillioi~ v. United Ref. Co., 279 F.R.D. 290, 297 (W.D. Pa. 2011) (consultant not intended to be a fact or expert witnesses). 10 601345. ] supported their newly invoked litigation consultant privilege (which, as shown above, has also not been established). See, e.g., Opp. Mem. at 17-20. Defendants also fail to meet their burden on the second criteria: that any claimed privileged communications were separate from Berdon's concurrent business communications. Defendants do not undertake a document by document analysis or evaluate testimony withheld, resting instead on sweeping conclusory platitudes. Notably, defendants fail to identify what, exactly, Berdon was doing as litigation consultant, and do not even attempt to explain how those services relate to the litigation consultancy but not to the business services being simultaneously provided. As discussed supra at 8, in the Motion plaintiffs explained the factual overlap between Kotler's work as litigation consultant and as accountant for Preservation, and defendants do not dispute any of it or even address it. ~ I C. Defendants Fail To Establish That The Testimony and Documents Are Entitled To Work Product or Trial Preparation Protection For the same reasons, defendants have failed to prove that the documents and testimony in dispute constitute work product or trial preparation materials, or, even if they do, that such protections have not been waived in light of the fact that Berdon will be a fact witness on business matters intertwined with the coininunications claimed as privileged. Defendants argue that "whether an accountant's documents" are work product "turns on" whether the accountant was retained by counsel as a litigation consultant. Opp. Mem. at 11; see also id. at 12. But far snore than entering into a retention agreement is required to sustain their burden under the circumstances here. " Contrary to defendants' allegations (Opp. Mem. at 8), plaintiffs address two cases in which Kovel was asserted in the litigation consultant context. See Mov. Mem. at 16-18, discussing Hatfield and Kelley. Further, those cases demonstrate that the same standard is used in all contexts. Opp. Mem. at 10, n. 2. 11 1 G0I 345. Work product and trial preparation protections are only available if defendants show that the material was prepared "primarily for purposes of litigation." MBIA Insurance Corp., 2011 WL 7640152, at *6 and *7; Zimmerman v. Nassau Hospital, 76 A.D.2d 921, 922, 429 N.Y.S.2d 262, 264 (2d Dep't 1980) ("multi-motivated reports do not warrant immunity if litigation is but one of the motives."); Cottillion v. United Refining Co., 279 F.R.D. 290, 302 (W.D. Pa. 2011) (same). It is undisputed that these doctrines "[do)not protect documents prepared `in the ordinary course of business, or pursuant to public requirements unrelated to litigation, or for other non-litigation reasons."' Cottillion, 279 F.R.D. at 302; AXA Mediterranean Holding, S.A., v. ING Ins. Intl, B. V., No. 652110/2010, at 7 (Sup. Ct. N.Y. Co. July 25, 2012) (records prepared in the ordinary course of business do not qualify for work product privilege).12 A waiver of these protections occurs where, as a result of disclosure to a third party, "there is a likelihood that the material will be revealed to an adversary, under conditions that are inconsistent with a desire to maintain confidentiality." AXA Mediterranean, Index No. 652110/2010, at 4 (waiver of work product privilege); People v. Kozlowski, 11 N.Y.3d 223, 246, 869 N.Y.S.2d 848, 863 (2008) (waiver of trial preparation privilege); Hatfield, 2010 WL 183522, at *3 ("A party who wishes to assert the work product immunity must take `reasonable precautions' to ensure the confidentiality ofthe protected material.") Assertions of these protections in comparable situations have repeatedly been rejected, as the proponents cannot establish that the information was primarily for litigation and/or that it had adequately been protected from disclosure. See, e.g., Hatfield (discussed in Mov. Mem. at 16- ~Z Defendants overstate the scope of work product protection. Addressing Hz~dson (cited by defendants), the First Department recently made clear that where a consultant is involved, the doctrine does not protect all documents, but "affords protection only to facts and observations disclosed by the attorney. Thus, it is the information and observations of the attorney that are conveyed to the expert which may thus be subject to trial exclusion." Beach v. Tourac~ji Capital Mgmt., LP, 949 N.Y.S.Zd 666 (1st Dept 2012). 12 601345. 18) (court rejected attempts to hide communications between counsel and consultant as attorney client communications or work product where the consultant, in turn, provided the information to the company's accountants for use in audit work); Kelley v. Microsoft Corp., 2009 WL 168258 (W.D. Wash. Jan. 23, 2009) ("Once a third party witness, hired after the start of litigation, is offered as deponent on the client's behalf, it becomes difficult for that third to maintain that party its primary function [was] to provide legal advice to the client"; rejecting assertions of attorney client and work product privileges); Stoll, 2010 WL 2560101, at *3 (work product privilege would be waived if facts underlying any testimony by litigation consultant were indistinct from those developed in her role as consultant); Hexion Specialty Chemicals, 959 A.2d at 52 (where litigation consultant continued to act as financial advisor and would be a trial witness, court rejects work product claim for documents as relating to business advice after in camera inspection). As shown above, defendants have failed to prove that any of the documents or testimony at issue constitutes work product, or that they were "primarily" for litigation. The affidavits largely make conclusory statements, and the logs themselves suggest that the substance of the communications relate as much to the facts pertinent to Berdon's ongoing business services as to the litigation services. A party's own labels are obviously not determinative of whether the protections exist. See Spectrum Sys. Intl Corp., 78 N.Y.2d at 381. In all events, a waiver of the protections occurred here. Berdon utilized the same facts and concepts being discussed with counsel in its accounting work and tax returns, which were provided to plaintiffs (and the IRS) and will be evidence in this case. All are in dispute: Berdon's/ Defendants' interpretation of the Preservation Operating Ageeinent (including Section 3.3) used by Berdon; the manner in which Berdon deprived plaintiffs of their capital contributions (in favor of Carol Deane) allegedly based on that interpretation; and the manner in which Berdon prepared 13 1 601345.1 Preservation K-1's (which was different from the prior year, when done by another accountant). See Mov. Mem. at 4-5, 14-15. These matters are addressed in the communications and documents withheld as work product and trial preparation materials. Given the disclosure of these matters to the business accountants (which here are the same people as the litigation consultants) and their utilization in disputed accounting work in this case, defendants failed to protect the claimed work product and trial preparation materials from being disclosed to plaintiffs. Defendants' cases do not support the finding of a valid privilege here. In Delta Fin. Corp. v. Morrison, 14 Misc. 3d 428, 827 N.Y.S.2d 601 (Nassau Sup. 2006) ("Delta Fin. II"), the consultant was hired by the client to conduct two residual certification evaluations, and a year later was retained by defense counsel as a litigation consultant. Id. at 430. Although the consultant was to be a fact witness in connection with its prior evaluation of the certificates at issue, the consultant was not doing any on-going work for the client, and would not be a fact witness about services provided at the same time that he was communicating with counsel as a litigation consultant. Thus, conversations between defense counsel and the consultant did not have the same potential to influence the preparation of documents and the events that would be evidence at trial, as occurred here. Accord AXA Mediterranean Holdings, S.A., supra (accounting firm did not provide business services simultaneously with litigation consulting services, and would only be a fact witness as to historical work).13 13 In all events, the materials should be produced based on plaintiffs' substantial need for them. These materials reflect facts and issues evaluated by Berdon in preparing accounting analyses and tax returns that will be evidence at trial, and about which Berdon will testify. Plaintiffs are unable to obtain the substantial equivalent of these materials by other means. C.P.L.R. 3101(d)(2). 14 601345.1 D. Allowing Any Privilege Here Would Set a Dangerous Precedent and Be Contrary to Public Policy To allow defendants to claim a privilege over documents and communications with counsel, with defendants and inte